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Doing their job

In yesterday's SCMP, Jake van der Kamp argued that the ICAC is wasting its time investigating fraud in the private sector.  This refers to a recent court case (Ex-Centaline executive admits bribe offers):

A former director and general manager of Centaline Property Agency admitted in District Court yesterday he had offered more than HK$1.68 million in bribes to secure property deals worth HK$300 million.

Chan Ngan-lau, 47, pleaded guilty to four counts of offering advantages to various people between April 2005 and August 2006.

According to the summary of facts, Chan gave HK$1.41 million in bribes to Ho Wai-jon, 51, a general manager of Li & Fung (Trading), as a reward after Ho engaged Centaline as the agent in three industrial building transactions in Kowloon and New Territories, one of which was valued at HK$240 million.

The money was listed as a "referral fee" that was paid to a company Chan owned, Royal Regency Investment. Chan cashed the money and handed it over to Ho.

Chan also made Centaline pay HK$275,000 to an investment company as a "referral fee" which, in fact, was a rebate for a transaction.

Chan pleaded not guilty to three other fraud charges and these were left on the court file.

Jake thinks that this wasn't bribery at all, but something far more mundane (Throwing the book at a minor offence - subscription required):

What we have at issue here is a very common commercial practice. When A [buyer] buys from B [property agency] on C [vendor]'s credit, B [property agent] shows his appreciation to A [buyer] with a gift for steering the business his way. Neither of them mentions it to C [vendor]. It used to be called tea money. We now call it a referral fee. This gift is, of course, invariably straight cash and the sums involved would routinely buy more tea than anyone can drink. What has happened here, you will say, is that C [the vendor] has been cheated and the law has a role to play in upholding C's property rights.

Well, I think I would have a simple question - has this payment been disclosed to all the parties?  In this case that means the vendor, and also the purchaser (Li & Fung).  I think the ICAC website helps:

Ho Wai-jon, 51, former general manager of Li & Fung (Trading) Limited, was convicted of one count of agent accepting an advantage, contrary to Section 9(1)(a) of the Prevention of Bribery Ordinance.

The court heard that Ho was assigned by Li & Fung Group in late 2005 to handle the company's property transactions, among which was the purchase of an industrial building on Cheung Sha Wan Road, a deal completed in June 2006 at $240 million.

Ho had accepted $800,000 in bribes from Chan on August 11, 2006 as a reward for engaging Centaline as an agent in the transaction.

It's not clear whether the vendor was aware of the payment, and it is possible that they were, and maybe even that they had no objection.  Jake think that is how things work:

I'm of the opinion, in fact, that in some businesses, particularly property and construction, there is only rarely such a thing as a straight contract with no extra payment under the table.

And very often this money goes to the right people in the transaction. Knowledge of the market can be as valuable as ownership of the asset being traded. If C doesn't know enough of the market and hires A to do his dealing for him then C should not fool himself that A will be satisfied with a wage alone.

By dealing well A has probably saved C far more than the referral fee involved and both know it or, at least, should know it. If C thinks that A does not deal well then he should get another dealer. But stopping referral fees won't get C better deals.

Er, I thought A was the buyer, and B was the property agent?  All this bribery gets very confusing...  I assume Jake means that the vendor is happy because the property agent has found a buyer at an acceptable price, and is not concerned with any money in brown envelopes that may have passed under the table.  Maybe they don't care, and maybe it doesn't do a great deal of harm, but I come back to my question - if it's all legitimate why wasn't everyone made aware of the referral payment?

I think we know the answer to that. 

Anyway, the case ended last week and the boss of the property agency seems to agree that it was wrong and that it was the company's fault (Centaline boss to rehire fraud trio - subscription required):

The chairman of Centaline Property Agency has vowed to rehire three former top sales agents who were convicted yesterday of conspiring to secure deals with kickbacks of more than HK$1.6 million.

Centaline Holdings chairman Shih Wing-ching made the pledge after a District Court deputy judge convicted the trio of conspiracy to defraud and bribery.

Speaking outside court, Mr Shih said his company should share responsibility.

"This case happened under our management," he said. "If we had stricter restrictions on the staff, it might not have happened."

The SCMP had another story on similar lines (Verdict good for property sector, says Centaline chief - subscription required):

Malpractice will be curbed: Centaline boss

The conviction of three property agents yesterday on bribery offences was a good step towards rooting out malpractice in the property sector, where agents faced intense pressure from unscrupulous buyers to offer advantages, their boss said yesterday.

Centaline Property Agency chairman Shih Wing-ching said the offences had arisen from low awareness among agents of the anti-corruption law and great eagerness to achieve transactions.

Mr Shih was speaking after the trio - Mark Chan Ngan-lau, 48, Poon Chi-ming, 44 and Lau Sau-yu, 38 - were convicted of conspiracy to defraud and bribery charges in a total of four transactions.

He said some estate agents were even threatened by the buyers to provide some advantages or else they would not finish the transaction.

"Among the estate agents, transactions mean everything," he said. "They are easily persuaded by the buyers to return them some benefits as long as there is a deal." Mr Shih said the staff might not know they had violated the Prevention of Bribery Ordinance because it was common in business circles for the buyer or a party to ask for some "benefit".

"Before this incident, our staff thought the ICAC only checked on public organisations but not private enterprises," he said.

"They did not know the ICAC would pick up on something that they commonly did."

Solicitor and legislator James To Kun-sun explained it was illegal for a party to the transaction to accept advantages from the property agency because it might affect that person's decision to defend his or her own company's best interests.

"If the person of the company receives a commission when buying the property for the company, the commission would affect the person's judgment to act in the best interests of the company," Mr To said.

But Mr Shih said it was a good step by the Independent Commission Against Corruption to tackle real estate malpractice and it would deter unscrupulous buyers.

So I have to disagree with Jake.  I think the ICAC are doing what they are supposed to do.

Comments

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fumier

Another important question is "who received the commission/referral fee/bribe?" If it was the same party that entered the underlying transaction (the purschaser), then the payment is no more than a discount. If it is someone else, using their position to obtain a personal advantage, outside their understood terms and conditions, then that person is gaining (dishonestly) at the expense of someone else, probably the purschaser of the goods or services.

Chris

Well, yes, I think that was one of the problems here. The money was paid to the employee of the company that purchased the properties. However, Jake van der Kamp thinks there's nothing much wrong with that.

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